When you enter into a contract with another party, you expect them to hold up their end of the bargain. Unfortunately, this isn’t always the case, and you may find yourself in a dispute over a breach of contract, wondering what steps to take next. In Texas, a breach of contract occurs when one party fails to fulfill its obligations under a valid contract without a legal excuse.
Knowing the types of damages and equitable remedies available in Texas can help you assess your legal options, negotiate effectively, and, if necessary, pursue legal action to enforce the contract and recover damages.
Here are five types of breach of contract damages in the Lone Star State and how the business law attorneys at Massingill can help.
1. Compensatory Damages
Compensatory damages compensate the non-breaching party for the actual financial losses suffered as a direct result of the breach of contract. The goal is to place the non-breaching party in the same position they would have been in if the contract had been fulfilled. Examples of compensable losses include:
- Lost profits,
- Cost of cover (i.e., obtaining substitute goods or services),
- Repair or replacement costs, and
- Incidental expenses incurred due to the breach.
In Texas, courts calculate compensatory damages by assessing the actual losses suffered by the non-breaching party. This calculation encompasses past and future damages and any reasonably foreseeable damages resulting from the breach. Ultimately, the objective is to fully compensate the non-breaching party for the harm caused by the breach.
2. Consequential Damages
Consequential damages arise indirectly from a breach of contract and are not a direct result of the breach itself. These damages are typically foreseeable when the contract is formed but do not necessarily flow directly from the breach.
In Texas, to recover consequential damages for a breach of contract, the non-breaching party must meet several requirements. The consequential damages must have been reasonably foreseeable or within the parties’ contemplation at contract formation. This means the parties must have anticipated these damages due to a breach.
Secondly, the damages must be caused directly by the breach and not be too remote or speculative. The connection between the breach and the consequential damages must be clear and direct.
Lastly, the non-breaching party must mitigate damages by taking reasonable steps to minimize losses. Examples of consequential damages include:
- Lost profits from other contracts that were dependent on the breached contract,
- Additional expenses incurred to remedy the breach, and
- Loss of business reputation or goodwill directly resulting from the breach.
If you have questions about the types of damages you may be able to recover, seek the advice of experienced Austin business lawyers like Massingill.
3. Incidental Damages
Incidental damages are expenses incurred by the non-breaching party due to the breach of contract. These damages are considered to be the direct result of the breach. They are typically recoverable in addition to other damages and compensate the non-breaching party for costs reasonably incurred to address the breach or mitigate further losses.
Unlike compensatory and consequential damages, which compensate for specific financial losses, incidental damages focus on reimbursing the non-breaching party for the breach’s costs. These damages are usually ancillary to other types of damages and cover expenses directly related to the breach.
Incidental damages include costs incurred in returning or disposing of non-conforming goods, stopping performance, mitigating damages, and fees for legal advice or other professional services directly related to addressing the breach.
4. Punitive Damages
Punitive damages, also known as exemplary damages, are generally not awarded in Texas breach of contract cases. The rare instances where punitive damages are usually available involve an independent tort, such as fraud, and the conduct was particularly egregious.
Courts also consider the proportionality of punitive damages to the actual harm suffered. The purpose of these damages is to punish the wrongdoer and deter similar conduct in the future.
5. Nominal Damages
Nominal damages are a token amount of money awarded to a party who has suffered a technical breach of contract but has not incurred significant actual damages, sometimes just $1.
The purpose of nominal damages is to vindicate the claimant’s rights and to establish that a party violated a legal right, even if no substantial harm resulted from the breach. Reasons a party seeks such damages include:
- Recognition that a breach of contract has occurred, even if no actual damages were suffered;
- Allowing the non-breaching party to seek legal remedies and maintain the integrity of contractual agreements; and
- To establish a legal record of the breach, which may be relevant in future disputes or litigation.
Nominal damages are often considered a moral victory for the plaintiff more than a monetary one.
Equitable Remedies
Equitable remedies are a set of legal options that courts can grant to provide fair and just outcomes when monetary damages are inadequate or inappropriate. These remedies address issues that cannot be adequately resolved through monetary compensation alone. Equitable remedies in Texas include:
- Specific performance. Requires a party to fulfill its contractual obligations as outlined in the contract and is typically used when the subject matter of the contract is unique, such as in real estate contracts.
- Rescission. Rescission involves canceling or annulling a contract, effectively returning the parties to their pre-contractual positions. It is often granted in cases of material breach or when the contract was based on fraud or mistake.
- Reformation. Reformation allows the court to modify a contract’s terms to reflect the parties’ true intentions. It is a remedy used when there is evidence of mutual mistake or fraud in the formation of the contract.
- Injunctions. An injunction is a court order that requires a party to either do or refrain from doing a specific action and is often used to prevent irreparable harm or to enforce specific rights.
- Declaratory judgments. This remedy allows the court to declare the rights and obligations of the parties under a contract or other legal instrument. These help to resolve disputes about the interpretation of a contract.
Equitable remedies are discretionary, meaning the court decides whether to grant them based on each case’s specific facts and circumstances.
Trust the Texas Contract Law Attorneys at Massingill
At Massingill, we take pride in making complex problems easy. Whether you’re new to handling contracts or are an experienced business owner, dealing with a breach of contract claim can become overwhelming.
With years of experience handling breach of contract cases, you can trust our Texas contract law attorneys to be your guide and advocate throughout the legal process. To schedule a consultation, give us a call or fill out our online contact form.
Where You Can Find Our Austin, TX Office
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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